fundamental alert

Worst Contraction In US Manufacturing In Decades Accelerates Recession

Monday, 03 November 2008 14:00:49 GMT  |  John Kicklighter, Currency Strategist

Given the direction individual sectors of the broader US economy are heading, the nation may be heading into a particularly difficult recession. Today, the ISM's survey for factory activity revealed manufacturers are going through their worst slump in over 25 years. Overall activity - measured through the headline reading - dropped much more quickly than economists had expected. A 38.9 reading was the guage's fourth consecutive decline and the lowest overall reading since 1982. Furthermore, looking into the indicator's supportive components, this may not be a quick contraction and sharp rebound. New orders and production levels dropped to their lowest levels since 1980 - reflecting the recessionary characteristics in which businesses reduce output, reduce their staff and further depress domestic demand. What's more, the global nature of the slowdown can be measured in the New Export Order component which reported its worst reading on records that began in 1988. Altogether, this indicator highlights that the dramatic drop in commodity prices was not considerable enough to offset the forecasts for growth; and if a drop in crude like the one we have seen this past month can't boost expectations, then the outlook for the economy must be dire indeed.

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